Hello, and welcome to the Q1 Earnings Call for Fiscal 2021. I'm Bill Wood, Sylogist President and CEO.

With me today virtually is Xavier Shorter, our Chief Financial Officer. We'd like to walk you through our financial performance and major developments in the first quarter, which ended on December 31, 2020.

Before we get into it, I should note that this conference call may contain forward-looking statements relating to our future operations and profitability of the company, any of which are subject to risks, uncertainties and assumptions, and actual events or outcomes may differ materially from those we contemplate here. Any such forward-looking statements made today, and except as required by law, we have no obligation to revise them.

I'd also like to direct your attention to the Q&A button at the bottom of your screens, which you can use to submit questions throughout this call. Xavier and I will aim to answer a few of the questions as time allows, and we will follow up with others offline.

I've had the pleasure of speaking with some of you since joining Sylogist in early November. But there are many on today's call with whom I haven't had the pleasure of speaking with.

Foremost, let me say that I'm excited to be here. Having been in the non-profit, the CSR and public sector spaces for almost three decades, I see Sylogist as a very unique company in this space with strong growth and value creation upside.

Although I've only been with Sylogist for a few months, the landscape and markets we serve are very familiar to me. I've always been passionate about the non-profit, K-12 and public sector spaces and have spent the bulk of my career building in accelerating technology companies centered on innovation and strong customer partnerships in these markets.

Prior to joining Sylogist, I was President and CEO at FrontStream, a private equity backed provider of SaaS solutions across the non-profit, payments, employee giving and corporate social responsibility spaces. I have considerable experience transitioning and leading SaaS companies into growth mode both organically and through strategic acquisitions.

Thanks to Jim Wilson's leadership before me, the foundation for growth at Sylogist is largely in place. My focus is on developing and executing the strategy and alignment to make it happen.

I'd like to begin the discussion with some of Sylogist’s recent developments. When we entered the 2020 fiscal year on October 1, we did so in a strong position.

First, we renewed our Board of Directors in July. We added two new directors; Craig O'Neil and Lester Fernandes and appointed Barry Foster, our Chairman.

Craig and Lester have extensive experience leading SaaS companies to rapid growth, and Barry is a seasoned investor focused on small cap businesses. Prior to accepting the Sylogist CEO position, I had several conversations with the Board to ensure we were aligned on driving value creation in the company.

We are. And I'm confident that their leadership and experience will be valuable to the executive team and me in accelerating Sylogist growth going forward.

Second, we renewed and broadened our agreement with Microsoft on even more favorable terms just days before the quarter began. While the economics are slightly better than what we had previously, the key feature of the new agreement that I want to highlight is that we have significantly expanded Microsoft technical support available to us as we accelerate our customers’ transition to the cloud.

Even more so than we already are, we're committed to being a leading cloud-based provider to the markets we serve and expect to see an improved competitive position, bookings pipeline expansion and further revenue opportunities flow from that commitment and an expanded partnership with Microsoft. In Q1 and in the week since it ended, we have continued to build out our foundation and readiness.

First, we closed on a $40 million credit facility that can be used for acquisitions, strategic initiatives and general corporate purposes. With this in hand, we can pursue transformative acquisitions without diluting shareholders.

With very low interest rates, we see access to and the use of debt as a potential accelerant to our inorganic growth strategy. We also welcomed a new Chief Technology and Innovation Officer, Terry LoPresti to the company in early January.

I worked with Terry for several years at my last company, FrontStream, where she held the CTO role, and I'm confident she will be a great addition to the Sylogist executive team. She's an outstanding leader and brings an impressive track record of delivering scalable, highly secure solutions, integrating acquisitions, unifying platforms to reduce OpEx and expand customer wallet share, monetizing payments technology and driving innovation.

Terry will lead Sylogist technology strategy and product development, play a key role in expanding our technology partnerships and executing our M&A strategy. Demonstrated by this earnings call, I'm committed to elevating Investor Relations, both retail and institutional.

Our recent appointment of Rudy Shirra as Manager of Corporate Development and Investor Relations provides those of you here today and the financial community more broadly with a dedicated point of contact. We are stepping up our investor outreach committed to quarterly earnings call like this one, and we're examining other ways to make sure Sylogist story is told often and told well.

Financially, we were very pleased with this quarter results, especially given the challenging economic environments in the markets we serve. Revenue is up significantly from the same quarter last year, showing the business' resilience in the face of COVID and the mission critical nature of our solutions.

Our operations have proceeded largely without interruption as much of our workforce was already working remotely prior to the pandemic, and we were able to effectively transition to a work-from-home for the safety of other team members that did work in one of our offices. Although some new bookings have been delayed due to the unprecedented pandemic, we see solid bookings pipeline activity and expect deal closings will accelerate through this year.

If you take a few things away from our Q1, I offer they should include these points. Sylogist is in a remarkably strong position and getting stronger.

We have a talented dedicated team, a highly sticky customer community, a contemporary product suite and a platform on which to build and integrate, and even stronger partnership with Microsoft, and proven experience executing M&A. And we intend to take full advantage of all of those going forward to drive growth and value creation.

I'd now like to turn it over to Xavier to take us through the financials in more detail.

Thanks, Bill. I'm Xavier Shorter, Sylogist’s Chief Financial Officer.

As Bill said, Q1 was a strong quarter in which we saw material revenue growth and industry leading high EBITDA margins. Most notably, revenue rose from 8.8 million in Q1 2020 to 9.5 million this quarter.

This largely reflects growth in our public sector and government vertical from our InfoStrat division. InfoStrat was acquired last April.

Due in part to InfoStrat, we have seen a 36% increase in our overall professional services revenue. We also are pleased to see our recurring revenue grow by 2% in the face of material economic headwinds, the pandemic created for our customers.

This revenue increase is especially notable since a multiyear implementation project for an international NPO customer was successfully completed in 2020. This means that customer is now live on our software across the globe, but also that in Q1 2021 no longer reflects this implementation revenue captured in its prior year comparator.

Adjusted EBITDA was 4.9 million, down from 5.2 million in Q1 2020. This is due partially to an increase in revenue from professional services, which has a lower profit margin than the other revenue streams, and partially to a number of one-time costs to secure our new $40 million credit facility and recruiting fees associated with our new CEO search.

However, even with these out of the ordinary fees, our resulting 52% adjusted EBITDA margin continues to put our profitability at the forefront of our industry. Our gross profit margin was 73% this quarter compared to 77% Q1 last year.

The decrease is primarily due to our InfoStrat acquisition and its current revenue orientation driven by professional services, which has lower margins than our subscription revenue. Operating expenses were down significantly in Q1 2021 to a historically more normalized level, following the one-time executive compensation buyout in the comparative period a year ago.

In total, profit for Q1 was 1.9 million, up from $6.4 million loss in Q1 2020. Earnings per share were $0.08, up from a loss per share of $0.07 last year.

We encountered some currency headwinds as the U.S. dollar fell reducing the value of our USD oriented contracts, which represent the majority of our overall revenue.

Return to investors remained strong. In Q1, we redistributed $3 million in dividends to shareholders, up from 2.4 million in Q1 2020 and spent 722,000 on share repurchases.

Quarterly dividends are now $0.125 per share and our normal course issuer bid remains in effect. We finished the quarter with a balance sheet that is as strong as ever.

At the end of Q1, we had $40.8 million in cash, no liabilities other than normal course payables and $10.3 million in deferred revenue from our annually billed [ph] software and maintenance contracts. Together with our $40 million credit facility, this gives us ample resources to invest in growth and value creation.

Thanks, Xavier. I'd like to conclude by speaking a bit about what you can expect from us going forward.

Sylogist has historically sought to deliver value to customers and operate efficiently and profitably. Over the past few years, we've done these very well.

With my hiring and the Board’s support, we're adding growth and value creation to those success criteria. Shortly after Terry LoPresti, our new CTIO came aboard a few weeks ago, I launched in taking the company through a strategic planning process.

That work continues, and I look forward to sharing more about that in the future. While the detailed discussion of the future would be premature, I'd like to share a few broad themes.

First, we are considering a range of options to drive organic growth. Our technology and customer care stacks up very well with any competitor in my opinion and experience.

The opportunity is now to unlock the company's top line growth potential. On the inorganic side, we are looking to increase our attention on acquisitions to gain complementary technology to grow bookings in customer ARR, expand our customer density in strategic markets, explore the monetization of the significant payment streams already occurring on our platforms, and possibly slide horizontally into new market opportunities that leverage our offerings.

We have a proven integration playbook with a track record of recognizing acquisition creativeness and upside. As a part of the strategic planning process, we will be defining the relative balance of M&A and organic growth in our top line revenue expansion.

In prioritizing growth and value creation, we will be focusing on offerings for our key NPO, NGO, K-12 and public sector verticals. Sylogist will continue to deliver stable, secure and innovative solutions to our targeted customer communities.

In conclusion, I'd like again to highlight Sylogist fundamental strength and resilience. We are growing revenue while maintaining healthy margins in the face of COVID and its economic turmoil.

Know that I consider focus, alignment and execution to be paramount to future success. Appreciating the time is of the essence, I tend to ask for a pace that is uncomfortable to many, but with the focus, plan and resources to get things done.

Our house is in good shape and we will be thoughtful in evaluating our growth options relative to shareholder interest. Thank you for your time and interest in Sylogist.

Xavier and I will now take a few questions as time allows.

Thank you, Bill. So the first question, Bill, can you share a few thoughts on how you're thinking about Sylogist's go-forward strategy and the corresponding blend of organic and inorganic growth?

Thanks for that question. Given our strong cash position and new credit facility with access to more if needed, we're in a very strong position to accelerate our M&A which may include complementary tuck-ins, IP related targets to strengthen our go-to-market competitiveness, and possibly even larger, more transformative opportunities.

On the organic side, we'll be focusing on the markets we feel present the best value creation opportunities. We’ll be leaning in and making investments in those areas in terms of R&D, direct sales efforts and partner channel opportunities.

Sylogist enjoys high customer satisfaction and substantial best practice expertise that we’ll be looking to leverage in terms of thought leadership and customer success. We also have a significant opportunity to bring new capabilities to customers that are already in-house and simply need to be repurposed, ultimately increasing our ARR and LTV, and as importantly, their trust and commitment to us.

Thank you. So next question, Xavier, you mentioned that a large implementation project was completed last year, which means the customer is now live and which naturally reduces the implementation service revenue in the subsequent quarter.

How should we think about that going forward?

So this was a multi-state, multi-year implementation across the globe. That said, there were sites installed in previous years that as new versions come out, upgrades will be required.

So they'll have to do upgrades. So there will be a continual cadence of upgrades associated with that customer, as well as regular ongoing maintenance and support.

So going forward, you won't see that large, let's say implementation, but we will be getting upgrade revenue in terms of getting to the latest version of Microsoft. This is central as well as ongoing maintenance and support from that customer.

Thank you. Bill, next question’s for you.

Tech company valuations have risen dramatically over the past few years. How did this affect your M&A strategy?

They certainly have and especially in the spaces we serve as the private equity community awakened and has been very active in recent years. Given our strong financial position, we can be aggressive.

In the consideration of companies, we feel our strategic, again, through a criteria lens of how it drives value creation in our business, and is underpinned by our modeling. Additionally, given our experience in this space and the relationships we have, I believe we can identify and approach companies that may not consider themselves as for sale and are under the radar of others, that gives us an opportunity to approach, talk to them and potentially close those deals without being on the radar of others.

Thank you. So, Xavier, you mentioned that profit margins fell in part because professional services, which are a larger part of revenue this quarter, aren't as profitable as subscription revenue.

Is this an anomaly or is this revenue mix closer to what we should expect going forward?

Well, I pointed out that we acquired InfoStrat back in April last year, so we're still -- and it takes us roughly 18 to 24 months to fully integrate an acquisition. We are in a process of reorienting that business to be more of a product focused versus services.

So that will take time. And as we prioritize products that will drive more services, drive more subscription and maintenance revenue, we will see more of that revenue which commands a higher margin going forward.

So as we integrate InfoStrat, we should see that margin profile expand.

Thank you. Next one is for you as well, Xavier.

You mentioned currency headwinds as a material contributor to reduce profit margins. How vulnerable is Sylogist to currency market fluctuations?

And have you ever considered currency hedging?

Well, the bulk of our business north of 75% is state bound and we report in Canadian, so we are susceptible to foreign exchange fluctuations. Historically, we've looked at cash as dry powder to execute on our strategic initiatives, mainly on acquisitions.

We stayed away from anything exotic, like hedging or anything like that. But given the weirdness of what's happening now in the economy and just the pandemic, we could be entertaining and start looking at other ways, maybe exploring some kind of currency hedge in the future.

Thank you. Next question is for you, Bill.

So now that you've been at the helm for a few months, are there things you're seeing that are surprising that you're concerned or excited about for Sylogist?

Yes, thanks for that. And I tried to highlight a bit of that in my opening remarks.

But undoubtedly, there's a considerable amount of untapped potential here. I did as much homework as I could before joining the company.

And the realities of now being in the seat for a little over 90 days have proved those out to generally be not only true, but maybe understated relative to what I believed in and had heard. The products themselves are contemporary.

I think the thing that is held some of our opportunity on the upside back is there hasn't necessarily been as much pull through of sharing between the IP and the talent of the respective teams to create value within the particular customer verticals we serve. I believe there is a very strong team that's in place to be able to get things done.

I do believe the acquisitions have been thoughtful. I think they have been additive in terms of strategic.

But now we need to make sure that they're recognized, as I said before, about those capabilities being pulled through and utilized elsewhere. I mentioned merchant services potentially as a way to monetize the payment streams going on in the other verticals that our platform is supporting.

I'm big on the data side of how we're delivering and digesting data as a result of our ERP system, to be able to make sure that we can deliver back the business intelligence so that our customers have easy access and visibility to that. And as Xavier highlighted in the InfoStrat division, there is a strong Microsoft dynamics expertise and the ability and the solutions that they have done at the state and federal level I think are extraordinarily interesting, and have the ability to be productized and scaled even more efficiently going forward.

Thank you. Bill, we've had a few questions related to priorities and plans and things like that.

I was wondering if you could speak to the strategic planning process that the company is going through now.

Well, the evaluation first comes from communication. We needed to make sure that the respective teams, the technologies have a top-down sharing that's going on so that we can fully appreciate the strengths and weaknesses of the different assets and talent teams that we have.

That's blended with the combination of market landscape where we see our position being strongest, where we see organic as well as inorganic opportunities occurring, how we think about our teams’ preparedness in terms of alignment as well as talent to make sure that we have a readiness state to be able to execute. The other component of that is just general overall wellness to the company, how connected are we in terms of our shared idea of focus goals, how one another is accountable and feels informed about what the go-forward strategy is reaching out to our customer communities, which I think has largely been underleveraged to this point, when giving them the ability to share their successes with one another, as well as talk with us about improvements in areas that they would like to see us move forward in.

The communities we serve are unique in such that they aren't competitive. They don't see themselves as competitive.

And so, therefore, if you can give them an opportunity to speak and share their ideas, best practices, lessons learned and create a buzz in the market, it is far better use of time and energy than sprinkling marketing dollars around. This market is very much about sharing with one another.

And we need to be part of that conversation, both in terms of our customers’ voice as well as our own voice as knowledge thought leaders out in the market with the best practices and the lessons that we've learned to really strengthen that idea of how we differentiate from just being a product company to really being a partner and service provider with our customers.

Thank you.

Jim [ph], one more. Out of that will really then come a focused plan both in terms of near term over the next 12 months, what are those defined goals?

What are the action items? What are the ownership associated with those and how are we going to measure our success and align ourselves around that?

Then we will look at the 24 to 36-month window, which then has broader goals, but ultimately the blend and the purpose in terms of recruiting talent, resourcing and IP to basically make sure that we can execute against the one year and add on to that in years two and three.

Great. Thank you, Bill.

Thank you, Xavier. I think we'll wrap up there.

For those of you whose questions we didn't get to, we’ll follow up with you offline. So please expect a respond to that.

Thank you for attending.

Thank you.

Thank you everyone.